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How The Dow Works An intro to the mathematics behind the measure.

Back in 1896, all Charles Dow needed was a pencil and paper to compute the Dow Jones Industrial Average® (The Dow®). He simply added up the prices of the 12 stocks and then divided by 12. When Dow scribbled these first simple calculations, no one could have imagined that over the next century his average would become the key benchmark to the nation’s economy.

In 1923, the task of working the numbers fell to Arthur “Pop” Harris, who had been hired in 1908 at the age of 22. For the next 40 years, Pop calculated The Dow every hour on the hour for the Dow Jones News Service. On busy trading days, he sometimes bloodied his hands pulling out the ticker tape. Through all those years, the financial world would hold its breath for seven minutes after the New York Stock Exchange's closing bell, waiting for Pop, who was a small, skinny man, to finish his official calculations on a piece of newsprint.

Pop Harris retired in 1963, and by then the advent of computers made it possible to calculate The Dow in a fraction of a second any time of the day. Today, the first step in calculating the index is still totaling the prices of the component stocks. But the rest of the math isn't so easy anymore, because the divisor is continually being adjusted to preserve historical continuity. In the past 100-plus years, there have been many stock splits, spinoffs, and stock substitutions that, without adjustment, would distort the value of The Dow.


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